Article

Capital Gains cut boosts entrepreneurs

03 May 2016

Investment in start-ups and growing businesses has become more attractive due to changes to Capital Gains Tax and Entrepreneurs’ Relief at the Budget in March, a new survey of business leaders reveals today. 8 in 10 of the 1,200 members of the Institute of Directors surveyed in April thought the Chancellor’s decision to cut CGT rates by 8 per cent, while extending Entrepreneurs’ Relief to long-term shareholders in unlisted companies, would draw investment to entrepreneurial companies.

Stephen Herring, Head of Taxation at the IoD, said:

“The Chancellor rightly reformed taxes on capital gains at the Budget to encourage investment in the entrepreneurial firms that will create the innovative products of the future, and new jobs with them. Today we have the first signs the reforms will pay off, with business leaders overwhelming saying that changes to CGT and Entrepreneurs Relief will draw investment towards start-ups and fast-growing companies.”

The cut to the rate of Corporation Tax, a key parameter for foreign investors, announced at the Budget was also viewed positively by companies. Half of IoD members said that the Corporation Tax cut was the right priority, but three in ten would have liked to have seen other reforms. The IoD said that the UK was approaching the point where other taxes should become the focus for future reductions.

Stephen Herring:

“Cutting corporation tax has the great benefit of helping all companies, and the Chancellor deserves to be commended for giving the UK a very internationally competitive rate. Now the good work has been done, at future Budgets the Government should consider whether reliefs targeted at entrepreneurial companies could bring more bang for the taxpayers’ buck.”

While businesses welcomed these measures to boost investment, they were more uncertain on changes to personal tax. One of the Chancellor’s major tax promises for this Parliament is to raise the 40p income tax threshold to £50,000, but opinion in the business community was divided on whether the increase to £43,000 next year showed the Government moving fast enough. 48 per cent thought the Chancellor’s pace was about right, but nearly the same proportion, 44 per cent, thought it was too slow.

Survey Results

1,224 members of the IoD responded to the survey between April 13-28 2016.

The higher rate of Capital Gains Tax is to be cut, from April 2016, from 28% to 20% for higher rate taxpayers and from 18% to 10% for basic rate taxpayers (excluding residential property and carried interests). Entrepreneurs’ Relief will also be extended to long term shareholders in unlisted companies. Will these changes make investment in entrepreneurial businesses more or less attractive?

Significantly more attractive

24%

Slightly more attractive

55%

Neither more nor less attractive

15%

Slightly less attractive

1%

Significantly less attractive

1%

The Chancellor announced in his March Budget that, from April 2017, the Higher (40%) Tax Threshold will be increased from £42,385 (2015/16) to £43,000 (2016/17) and to £45,000 (2017/18) as a step towards the Government’s ambition for a £50,000 threshold. Do you think this rate of increase is...?

Too slow

44%

About right

48%

Too fast

4%

Don’t know

4%

The Chancellor announced in his March Budget that the rate of Corporation Tax will fall from 18% (2019/20) to 17% (2020/21). Please tick all of the following which you think are correct:

The cut in corporation tax will attract foreign investment

42%

The Chancellor was right to make cutting corporation tax the priority

47%

Other business tax reforms should have been higher priority that cutting corporation tax

30%

Rather than cutting corporation tax across the board, the Chancellor should have focussed on tax reliefs for entrepreneurial companies